Bill to provide Minister for Finance with far-reaching powers over banks

THE MINISTER for Finance will be granted sweeping powers under a new Bill that will provide the basis for a complete overhaul of the Irish banking system.

The Credit Institutions (Stabilisation) Bill will give the Minister a range of emergency powers up to the end of 2012 to intervene with Irish-owned credit institutions in the “public interest”.

It also provides the legislative basis for changes agreed with the EU and International Monetary Fund as part of the bailout.

The Minister will have the power to issue directions to the financial institutions to take or prevent any actions in order to support its banking strategy.

These could include issuing shares to the Minister; delisting from the stockmarket, which might be relevant to AIB, Bank of Ireland or Irish Life & Permanent; suspending a listing; increasing an institution’s share capital; disposing of certain assets or liabilities; and altering a company’s internal rulebook.

It allows the Minister to transfer assets and liabilities from relevant institutions to facilitate the restructuring of the sector.

This will underpin the restructuring of Anglo Irish Bank and Irish Nationwide.

Banks will be allowed up to 48 hours to make a written submission to the Minister over a transfer order if it is not in agreement with the terms of the order.

Crucially, it will empower the Minister to make orders on a case-by-case basis to allow for “appropriate burden sharing” with subordinated creditors.

But there is no mention of senior bond holders, who will continue to enjoy the protection of the blanket bank guarantee.

Another key power that will be held by the Minister is the appointment of a special manager to an institution if there is an imminent threat to its stability.

This will be allowed following consultation with the governor of the Central Bank.

This person will be akin to an administrator who would run the bank on behalf of the Minister in certain circumstances.

The special manager will have wide-ranging powers.

The special manager can be appointed for a period of six months and will take over the management of the business as a going concern.

Any decision taken by this person will override any decision by shareholders.

They will have the power to acquire or dispose of any asset or all the assets, and any liability, of that institution.

The special manager will also be able to remove any director or employee and terminate the use of consultants.

While employees will be able to seek compensation for losing their position, they will not be able to “prevent or restrain” the special manager from exercising such powers.

There are also a number of general powers afforded to the Minister.

These include removing any director or employee of a credit institution without any notice being given.

The Minister may appoint a director to any institution, subject to the approval of the governor of the Central Bank.

The Bill also allows the Minister to impose conditions in relation to any financial support, including not paying financial bonuses to employees.

Hefty sanctions are provided for in the Bill for anyone who publishes the fact that the Minister has enacted the main powers in the Bill or is proposing to do so.

Fines of up to €100,000 and prison terms of up to three years are provided for in the legislation.

The High Court will have the power to order that any application made under the act be held in private.

The court can rule that certain “commercially sensitive” information may not be disclosed in court or reported.

The Bill also contains provisions to ensure there is “appropriate judicial supervision” of the Minister’s emergency powers.

EMERGENCY POWERS: MAIN POINTS

Can direct banks to take or prevent actions that would run contrary to Government’s banking strategy.

Can impose conditions over financial support. So there will be no more bonus payments.

Can transfer assets and liabilities from relevant institutions to facilitate restructuring of the banking sector. This will underpin the restructuring of Anglo Irish Bank and Irish Nationwide.

Appointment, on consultation with the Central Bank governor, of a special manager to “preserve or restore a credit institution”.

Will be able to effect a recapitalisation of AIB before the end of 2010 to enable the bank to meet its regulatory capital requirements set down by the Central Bank of Ireland.

Allows the Minister to suspend payments to the National Pension Reserve Fund. Will also be able to direct the fund to invest in government bonds and to make payments to the exchequer for period of deal with EU and International Monetary Fund.